Question

What is the difference between comparative advantage and absolute advantage in Ricardo’s theorizing? Which one determines a country’s specialized production?

Answer 1

If a country has an absolute advantage in producing something, it means that it can produce a given amount of the good or service by incurring the minimum cost, than any of it's competitors, whereas if a country has a comparative advantage in producing something, it implies that, it can produce that good or service at lower opportunity cost (cost of something that one gives up to produce another thing) than other goods which incurs higher opportunity cost. If two countries, producing two goods, are compared, then, one country can have absolute advantage in producing both the goods but has comparative advantage in producing one good only.

Comparative advantage determines a country's specialized production.